I need to know how to properly report taxes. - AgingCare.com

I need to know how to properly report taxes.

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Hi, I moved my elderly Grandparents into my home and have been receiving a monthly payment for rent, food, utilities, etc. I have a care contract in place that was written by an attorney. I have spoken to a few CPA's all with differing opinions on how I should report this extra income to the IRS. One says I am a household employee and my Grandparents need to provide me with a W-2, I don't agree with this. One says I could use a Schedule C and deduct their expenses. One suggested I report it all as rental income, which seems too aggressive. I am not trying to evade taxes, I just need to know how to properly report. We hire a caregiver from an agency to look after them while I work full-time. So a large portion of my monthly payment is for expenses--I pay for their housing, food, medications, clothing, etc. Could someone please advise as to how this should be properly reported? Thank you.

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Alisonlei, did you find a definitive answer to your question? I am in a very similar situation and am trying to figure out the correct way to handle the tax issue.
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@careisgiving: Wow! Thank you so much for all of the information. I can't file as HOH for 2016 because my mom is also on the mortgage and she retired in 2016, she needs to claim the house to offset any taxes she may face for her severance. I have kept all receipts and use only one checking account to pay the mortgage, utilities, meds, etc. So if I do get audited, I have everything.
@geevesnc: I did consult with an elder law atty, the atty is only well versed in my grandparents, not me. My grandparents have not filed taxes in years but they sold their home in January. They pay for the private pay caregiver from their own Trust, the money I receive is separate and documented in a Care Contract. We consulted with a Care Manager to write a report to assess the amount that is appropriate to pay me for their rent and level of care needs for hours the private pay caregiver is not here. Their reporting is well documented for potential Medicaid qualifications.
Anyhow, thank you so much for the advice! Because I am still single, I used to just file a 1040 and be done so my knowledge of taxes is really elementary. I really appreciate it~
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Great information Careisgiving! I wish everyone would/could read this!
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If you have access to a local H&R Block, then ask to speak to a senior tax preparer. Tell the receptionist that you have eldercare expenses to report and you'll only meet with a senior tax preparer. Don't meet with a Level 1 preparer. Ask for the tax preparer's business card - to verify that you're meeting with a Senior Preparer. H&R Block is open late in the evenings and on Saturdays. Appointment with Senior Preparers can be booked weeks in advance from former clients so the receptionist may try to push you into a Level 1 preparer - you don't want this. The Level 1 preparer will kindly step away - and ask the Senior Preparer for help. I used to work for this company many years ago - and the tax preparation training is very comprehensive - the best in the industry, actually. Continuing education on all tax changes is required - every year - before the employee is considered for re-hire the next tax season. Many CPAs are not trained in tax preparation; accounting is different from taxes. It's not as simple as where do I put the income I'm getting from my grandparents. Your and their tax situation need to be critically evaluated as a standalone and together for the best result, i.e, least payment in taxes. Yes, you could do a Schedule C - assuming you're filing as single but this Schedule C income is then added on top of your ordinary income - which will raise your taxable income - which will raise your taxes. Do you want this? Most people want to limit their tax payment. :-) However, If you pay more than 50% of all of your grandparents' expenses - and have kept all receipts/recordkeeping in case you're audited to prove this, then you could file as Head of Household and claim these expenses on Schedule A for itemized deductions. This is also the place where you put the expense of any other caregiver/agency you are paying to care for your elders. If you can't file as HofH, then yes, Schedule C could work for you but it's also based on what else is going on taxwise for you and your grandparents. The CPA who advised to you report it as "all" rental income - is an idiot - a moron. Stay away from this person! To protect yourself in case of an audit, you'll want to note the actual breakdown in numbers. Another CPA said you could be considered an employee?? Seriously?? This is so not necessary and not advantageous to your tax situation. This CPA will create - an unnecessary headache for you if you listen to this person's advice because your grandparents (or rather you or whomever on their behalf) will have to file a separate form - for household employee/employment tax. It's very frightening how many CPAs give incorrect advice. Again, you really should meet with a senior tax specialist at H&R Block - because accounting and tax preparation are totally different. A tax preparer has to review all of your income, expenses (for example, any educational expenses, etc) and your grandparents to guide you to what is the best scenario - for both of you. Google enrolled agent and if you have access to one in your area - pay the money to have your taxes done by him/her - only if you can't get into H&R Block. These agents are the Ph.Ds in tax preparation. They are the creme de la creme in tax preparation knowledge. There's absolutely no way they can screw up your tax return. The exam is very rigorous and the pass rate is very small.Their knowledge of tax preparation is right on par with IRS agents. In fact - if you're ever audited - you want an EA (Enrolled Agent - not a Tax Attorney - to be your representative). The typical CPA, the typical Tax Attorney - will fail the Enrolled Agent exam - because they don't know how to taxes. However, you'll be absolutely fine with a Senior Tax Preparer at H&R Block. :-)
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You report it in the method written in the care contract. It's too late for the w-2 method, those tax reports are due quarterly.
Personally, I would do schedule C. I hope you have been keeping good records of all the income and expenses, especially receipts.
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I think an Eldercare attorney can help you. There are too many opinions out there. You are not an employee and they are basically sharing expenses with you. Here is a link from this website that addresses many IRS/Tax questions with resources listed at the bottom. Best of luck!
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